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The Climate Needs Aggressive CEO Leadership

On Sunday, 300,000 activists took to the streets of New York for the People’s Climate March, the biggest climate protest in history, and the United Nations on Tuesday held the Climate Summit. In the spirit of Climate Week, we’re presenting insights from members of the Harvard Business School Business and Environment Initiative. The common theme: Why business leaders need to address the stubbornly touchy topic of climate change.

BY MICHAEL TOFFEL AND AUDEN SCHENDLER

Corporations are facing great uncertainty. For the world to avoid the worst impacts of climate change, the United States eventually will have to put a price on carbon dioxide emissions, as has been done by Europe, parts of Canada, and California. To plan for the future, corporations need guidance on that potential pricing structure. At the same time, US businesses now wield more and more political power to influence such policy, thanks in part to Supreme Court rulings like Citizens United that enable them to spend unlimited sums on political campaigns.

Is it possible that together, these two trends might work together to solve climate change? We believe they can, but it’s going to take something unprecedented in the battle to enact climate policy: aggressive CEO leadership.

The desire for certainty about the future price of carbon is not new, and it’s not unique to small or green-leaning businesses. Duke Energy argues that renewable and clean energy policies give “utilities and non-utility energy providers with the certainty necessary to make investments.” In 2009, Duke joined a business coalition called USCAP (United States Climate Action Partnership) to encourage Congress to pass laws limiting greenhouse gas emissions. Should Duke Energy build any more coal-fired power plants? How much should they invest to reduce pipeline leaks of natural gas, given how the cost of those emissions could rise substantially if carbon were priced? From a financial perspective, answering these big and expensive questions requires knowing how to price carbon in forecasting models, and that requires anticipating US climate policy.

Henry Paulson, former CEO of Goldman Sachs and Treasury Secretary under President George H.W. Bush, recently argued in favor of a national policy that would put a price on carbon and stressed that our failure to do so represents “ a very radical risk.” IKEA Group’s Chief Sustainability Officer Steve Howard recently said that “There’s strong support for a meaningful price on carbon. And we all want a policy framework that creates sufficient certainty that unlocks investment and innovation. ” If anything, that argument is getting louder and more strident. Some corporations are already using their Citizens United supercharged political power to strongly oppose progressive climate policy.

But there are also large, powerful, respected, and influential corporations that support addressing climate change—a message arguably more appealing to Americans than the opposition’s message of predicted economic disaster. Instead, they offer a business case that also happens to protect children, the environment, and public health. The problem is that these companies have been relatively quiet, and are generally outgunned by fossil fuel money. How might they turn the tables?

We believe CEOs in particular need to speak up forcefully and publicly on the need for aggressive government climate policy. The fact of the matter is that they have not done this here. Coca-Cola CEO Muhtar Kent, for example, made strong statements at the United Nations climate change summit in Cancun in 2010, but has not been nearly as vocal in the US. In this country, corporate climate spokespeople are almost always lower-level executives, who simply don’t carry the same weight in the eyes of the citizenry or politicians.

CEOs are well-positioned to educate the public and policymakers that climate policy is critical for stable long-term economic growth. Much more than political figures, Americans see CEOs as rock stars. They could play an especially valuable role if they choose to debunk the opposition’s claims that regulating greenhouse gases will lead to economic catastrophe. Those very same arguments have been made time and again when environmental regulations have been proposed. As the Economist and Bloomberg View recently noted, the automobile, mining, and electric industries predicted dire economic consequences from the 1970 Clean Air Act-including the end of the automobile and “irreparable damage” to the America economy. Yet history has shown that industry responses often hugely overestimate the costs and underestimate the public benefits. CEOs, not NGOs, are the most credible voice to refute these claims.

CEOs powerfully voicing the need for climate actions would provide a much-needed counterweight to special interests that have not been shy about ensuring the status quo, which allows carbon emitters to avoid bearing the cost of their pollution by foisting it on the public. A groundswell of CEO voices favoring a price on carbon would also provide critical political cover to politicians who believe in forcing carbon polluters to pay in the name of restoring free market capitalism. And yet, the number of businesses remaining silent or actively opposing climate change policy far outnumbers those supporting it. Given this situation, breaking the logjam in climate change policy requires not just any voice from business, but rather the voices of the most powerful and visible businesspeople-CEOs.

Scientists have reached consensus about the consequences of climate change at the same time that corporations have achieved unprecedented political power. No longer can CEOs claim substantial doubt or lack of influence. As a result, history will judge CEOs not just on their stewardship of firm growth, but also on whether they used the enormous political power newly entrusted in corporations to address one of the greatest societal challenges of our time.

As Americans march in the streets before the UN Conference, and as the global climate approaches tipping points beyond which lies unchartered territory, an enormous opportunity to exercise political leadership awaits. The question is: Which CEOs will take it?